We are entering a new era in which the current way we run our economy won’t work.

Let me tell you
about my career in economics. It started when I was ten and my father, a
real economist, hired me to crunch numbers for a book he was writing
about the stock market. I used an old Friden mechanical calculator,
which literally put the crunch in number-crunching. I had no idea what
the numbers meant, but I really enjoyed crunching them.

Later, thinking that I had some aptitude with numbers, I decided to
major in math at college. Big mistake. It was way over my head. So I
wound up majoring in history and became a journalist for 13 years after I
graduated.

But then, in my 30’s, I had the inevitable mid-life crisis. Did I
want to spend the rest of my life writing about what other people were
doing? Or did I want to do something myself?
So I decided to start a worker-owned solar energy business. Now, bear
in mind that there was no solar industry at the time. I didn’t know
anything about solar energy and I didn’t know anything about running a
business either. It was madness. But it turned out to be wonderful
madness, and it worked for six years until Ronald Reagan abolished the
tax incentives for solar power. I then co-founded Working Assets, which
later became Credo Mobile.

In all, I spent 20 years as an entrepreneur, turning interesting
ideas into businesses. And the reason I spent 20 years doing this was
not to get rich, but to learn from the inside how capitalism worked, and
how far its boundaries could be pushed.

During these years, I road-tested a variety of alternatives to the
standard capitalist model: worker-ownership, socially responsible
investing, and socially responsible spending. Eventually, I concluded
that none of these worthy alternatives, or even all of them put
together, will save us from capitalism’s two tragic flaws—its relentless
destruction of nature and its equally relentless widening of
inequality. These flaws are coded and hard-wired into our current
capitalist system. If I wanted to learn how to fix them, I had no
alternative but to go back to economics, which, after I retired from
business in 1995, is what I did.

An Economy That Works For All

Now, 19 years later, I’ve come to some conclusions and I want to
share them with you tonight. These conclusions can be summed up in three
sentences:

We are entering a new era in which the current way we run our economy won’t work.

In this new era, our economy must do two things it doesn’t do now:
operate in harmony with nature and provide adequate income for all.

The best way to achieve these goals—that is, the way that requires
the least involvement of government—is to “propertize” some common
wealth and share the income from that wealth equally. (I’ll explain what
I mean by ‘propertize’ in a minute.)

Why is this important? It’s important because if we do what I’m
proposing, we can have a market economy that does what a 21st century
economy needs to do. We can have a market that works for all, including
our shrinking middle class, nature, and future generations. We can have
the kind of locally rooted economies that many of you are working to
build in the Berkshires and elsewhere—economies that will flourish once
the global corporate economy is made to pay the costs of using common
wealth—costs that it’s not paying today. To get from here to there, the
key is to think differently about the wealth we own together, and to
organize that wealth in new ways.

Let me ask a question now. How many of you have heard the term
“Anthropocene” before? That’s impressive. So most of you know that the
term refers to the geological era we are now living in, as opposed to
earlier geological eras such as the Jurassic, Cenozoic, and so on. The
term was coined in 2000 by chemist Paul Crutzen from the Greek root for
human, anthropos, and it means the Current Human Age.

What distinguishes the Anthropocene from the Holocene—the era that
began when the last Ice Age ended—is that we humans have become a
dominant geological force on our planet, if not the dominant geological
force. Our impacts on oceans, forests, fresh water, topsoil,
biodiversity, and the atmosphere have been devastating, and they
continue getting worse at an accelerating rate. In short, the human
species is out of control.

I don’t want to diminish our species’ accomplishments during the
Holocene; they’ve been momentous. But we can’t continue doing business
in the Anthropocene the way we did in the Holocene. What’s normal
today—and I’m speaking here of normal economic behavior—can’t be normal
tomorrow. We need a “new economic normal” in which, at a minimum, the
two tragic flaws of our current economic system are fixed.

Three Visionary Economic Thinkers

I began my post-entrepreneurial explorations by re-reading three
economic thinkers that many of you will be familiar with: E.F.
Schumacher, Henry George, and Thomas Paine.
Schumacher’s chief concern was harmonizing our human economy with
what he called the meta-economy of nature. With this in mind, he
encouraged the development of appropriate technologies, worker-owned
businesses, and locally-rooted economies. In my view, these activities
describe the kind of world we want to get to. The problem is: we can’t
get there from here until we stop the juggernaut that’s devouring our
planet and turning our society into a plutocracy. That’s why we need to
fix those major systemic flaws.

Henry George’s primary concern was the maldistribution of income.
Writing in the 1880’s, he asked why poverty continued, and even grew, as
America got richer. His answer was land rent. Land rent, George wrote,
was like “an immense wedge being forced, not underneath society, but
through society. Those who are above the point of separation are
elevated, but those who are below are crushed down.”

I’ve never forgotten George’s image of rent as a wedge between rich
and poor. It accurately described reality in 1880 and still does today
if we expand the scope of rent beyond land. But in thinking about
George’s proposed remedy—a single tax on land—I concluded that it’s
insufficient. It would recapture some unearned rent from landowners but
would channel that money to government rather than to those crushed by
the wedge.

Then I re-read Thomas Paine. Amazingly—since he was writing in the
18th century—I found Paine’s thinking more relevant to the Anthropocene
than anyone else’s. Paine’s economic thinking is contained in his essay
Agrarian Justice, which, despite its title, isn’t about agriculture but
about property rights.

“There are two kinds of property,” Paine wrote. “Firstly, natural
property, or that which comes to us from the Creator of the
universe—such as the earth, air, water. Secondly, artificial or acquired
property—the invention of men.” The latter kind of property must
necessarily be distributed unequally, but the first kind rightfully
belongs to everyone equally. It is the “legitimate birthright” of every
man and woman, “not charity but a right.”

Paine’s genius was to invent a practical way to distribute income
from shared ownership of natural property. He proposed a National Fund
to pay every man and woman roughly $17,000 (in today’s money) at age 21
and roughly $12,000 a year after age 55. Revenue for the fund would come
from ground rent paid by landowners. Paine even showed mathematically
how this could work.
Presciently, Paine recognized that land, air, and water could be
monetized, not just for the benefit of a few but for the good of all.
Further, he saw that this could be done at a national level. This was a
remarkable feat of analysis and imagining.

Two Less Familiar But Important Economists

I want to jump now to two less familiar economists: Arthur Pigou and Ronald Coase.
Arthur Pigou, a colleague of Maynard Keynes’ at Cambridge, was the
first economist to focus on the market’s failure to incorporate external
costs such as pollution. This is capitalism’s Tragic Flaw #1 that is
responsible for climate change, among other serious ills. The essence of
the problem is that, because markets charge nothing for pollution,
companies pollute far more than they would if markets charged a
substantial price.

Pigou’s remedy was for government to estimate the costs that are
externalized—let’s say the costs of pollution—and to tax polluting
activities enough to reduce them. Though Pigou’s fix would work through
markets, it isn’t entirely a market fix because it requires government
to calculate external costs, and impose appropriate taxes and collect
them. This supposes an adept and enlightened government, free from the
sway of the externalizing industries—a supposition that’s hard to make
these days.

Ronald Coase was a colleague of Milton Friedman at the University of
Chicago. His breakthrough was to show that markets could set prices for
pollution without government. Markets could do this if—and it’s a big
if—polluters and pollutees had property rights and could bargain with
each other easily. They’d then arrive at an amount and a cost of
pollution that was agreeable to both sides. Pollution would cost more
and there’d be less of it—with no Environmental Protection Agency
needed.

Coase’s model intrigued me, but I saw a few problems. First,
pollutees—which is to say, all of us—presently have no property rights
with regard to ecosystems being polluted, and thus no way to bargain
with polluters. If Coase’s model is to have any practical use in the
real world, that problem must be solved.

A second problem is that, while the agreed amount of pollution would
be “optimal” for buyers and sellers of pollution rights, it might not be
optimal for nature, which isn’t included in the bargaining.
A third problem lies in the distributional impacts of Coase’s
model—which, if it were adopted widely, would be huge. One of the key
questions Coase avoided was who should pay whom. Should polluters pay
pollutees for the right to pollute? Or should pollutees pay polluters to
pollute less than they currently do? Coase argued that for the optimal
price and quantity of pollution to be reached, it makes no difference
who pays whom. This may be true theoretically, but in the real world,
who pays whom makes a big difference. If pollutees have to pay higher
prices to polluters, polluting corporations would benefit and ordinary
people would see their living standards fall.

While thinking about climate change in the early 2000’s, I saw a way
to solve all three problems in Coase’s model. A “sky trust” could be
created to hold America’s atmospheric pollution rights in trust for
future generations and living pollutees equally. Using peer-reviewed
science, the trust would decrease its sales of pollution rights over
time until a safe level for nature was reached. Meanwhile, revenue from
the sales would be distributed equally to every legal US resident with a
Social Security number, offsetting—and in many cases, more than
offsetting—the impact of higher fuel prices.
The sky trust model was based on the Alaska Permanent Fund, which
since 1982 has been sharing oil-based income with every Alaskan equally.
In 2009, the sky trust became known as “cap and dividend” and was
considered, though not passed, by Congress. It’s still the best climate
change solution out there—and one that Congress is starting to re-visit.

A New School of Economic Thinking

Let me end this brisk tour of economics by mentioning a new school of
economic thinking based on systems theory. This school is sometimes
called “complexity economics,” and one of its leaders is Eric
Beinhocker, director of the Institute for New Economic Thinking at
Oxford. The basic idea of complexity economics is that an economy, like
nature, is a complex adaptive system whose large-scale patterns emerge
from the interaction of autonomous agents following simple,
internally-coded rules. Another of its tenets is that if a complex
system is to remain near equilibrium, its positive and negative
feedbacks must be roughly in balance.

Positive feedback is amplifying—i.e., it reacts to an action by doing
more of it. The classic example is the screech you get from a sound
system when the microphone is too close to the loud speaker. Negative
feedback is corrective; the classic example is the thermostat. The
danger in any complex system is that amplifying feedback will outweigh
corrective feedback. When that happens, the system will flip into
runaway mode and eventually crash.

The trouble with our current economic system is that its agent
population and its feedback mechanisms are both out of balance. In terms
of feedback, amplifying feedback far outweighs the corrective
kind—thus, the exponential growth of human economic activity and the
accelerating rise in inequality. In terms of agents, we essentially have
a monoculture of profit-maximizing corporations. These corporations are
coded to externalize as many costs as possible—to take as much from
workers, nature, and society as they can, and pay as little as they can
get away with. Hence, climate change, wealth concentration, and the
decline of our middle class.

It’s time now to pull all of these pieces together. My thinking about
how to fix the two giant flaws of capitalism is essentially a mélange
of Paine, Coase, and complexity economics. What holds the mélange
together and makes it work is common wealth.

The Power of Common Wealth

Common wealth—which is to say, wealth that rightfully belongs to all
of us together—comes in tangible and intangible forms. It includes
tangible gifts of nature such as our atmosphere and ecosystems, and
intangible human creations such as our financial system. It also
includes the value added by complex systems within our economy—the
“emergent” value that exceeds the summed value of a system’s parts.
Consider what would happen if the Internet, our power system, or our
monetary system crashed—the parts of these systems would have little
value on their own. It’s the whole that creates most of the value of the
parts.

All of this common wealth is hugely valuable. We couldn’t live
without it, and we certainly couldn’t have the amazingly productive
economy we now have without it. The trouble is that the market doesn’t
see this common wealth—it’s like the dark matter of the economic
universe. And that’s what needs to change.

We need to make invisible common wealth visible.

The way the market ought to see common wealth is as wealth held in
trust for future generations, for other species (when appropriate), and
for all living persons equally—or, as legal scholar Carol Rose put it,
as “property on the outside and commons on the inside.” For this to
happen, common wealth must be embodied in legal entities that the market
sees and respects. Outwardly, such entities would look like
corporations, but inwardly they’d be coded to protect their assets for
future generations and to share current income (if there is any)
equally.

In my book Capitalism 3.0, I called this process of legally embodying common wealth propertization — which shouldn’t be confused with privatization,
which is the giving or selling of common wealth to private owners.
Propertization keeps common wealth common, while at the same time
protecting it from private takeover. A great example is the community
land trust.

My argument then is that propertization of selected pieces of common
wealth, if done to scale, can fix capitalism’s two great tragic flaws.
By making invisible common wealth visible, it can make the invisible
hand of the market smarter and fairer.
Let me walk you through this flaw by flaw.

Flaw #1 (and a solution): The current version of
capitalism overuses nature because the price of taking from nature is
exactly zero (as is the price of screwing future generations). Hence,
despoliation rolls on. The solution, as every economist knows, is to
internalize externalities—to make polluters and depleters pay today. To
do that, the market must tell large commercial entities, “No
externalization without compensation!” The question is how to do that
efficiently and economy-wide.
Propertizing common wealth gives us a way to do it. Right now,
externalities are invisible to markets because there are no economic
actors that turn them into prices that externalizers have to pay. But
suppose that the market was populated by what I’ll generically call
common wealth trusts. On the outside, these trusts would be to common
wealth what corporations are to private wealth—chartered legal entities
that represent defined interests. In the case of corporations, the
interest is shareholders. In the case of common wealth trusts, it would
be a combination of nature, future generations, and members of society
as a whole.

If the market were populated by such trusts, corporations couldn’t
just shift costs and pay nothing. They’d have to bargain with
representatives of nature, future generations, and members of society as
a whole. “No externalization without compensation” would become the
rule. This would affect prices throughout the economy, and in the
process, flip positive feedback to negative. Instead of having an
incentive to externalize more, corporations would be forced to
externalize less.

Flaw #2 (and a solution): Propertizing common wealth can also fix the second tragic flaw of capitalism, widening inequality.

Remember Henry George’s image of rent as an economic wedge,
continuously widening the gap between rich and poor? The reason this
happens is that the rich have powerful agents on their side—namely,
corporations—while everyone else has weak or no agents on their side.
And it’s simply a fact that in a competitive economic system, wealth
will flow disproportionately to those who have the most powerful
collection agents.

But remember those common wealth trusts we created to solve the
problem of externalities? It turns out they can serve a second function:
to represent all living members of society in the marketplace, as Paine
argued in 1797 and as the Alaska Permanent Fund has been proving since
1980. When corporations are properly charged for using or depreciating
common wealth, the trusts can distribute some or all of the proceeds to
all members of the community—one person, one share. If this were done,
we’d wind up over time with two parallel systems for distributing
income: the highly unequal system based on private wealth that we have
today, and the exactly equal system based on common wealth that would
run alongside it. That second system wouldn’t eliminate economic
inequality altogether, but the bigger it got, the more it would level
things out.

Liberty and Dividends For All

Finally, let me say a few words about my new book, With Liberty and Dividends for All.
It has now become clear that, thanks to globalization, automation, and
the decline of labor unions, there won’t again be enough good-paying
jobs to sustain a large middle class in America. This is an inconvenient
truth, but it is the truth and we have to face it. Though politicians
(and most economists) still talk as if jobs and jobs alone are the
answer, the fact is that, if we want to have a large middle class in the
future, we have to supplement labor income with non-labor income.

Here there are two possible paths. One is to raise taxes on the rich
and distribute the revenue to others using some kind of means test. The
other is to pay dividends to all from wealth we own together. For
reasons you can now understand, I favor the latter approach. The
dividends would come from a nationwide fund similar to Alaska’s
Permanent Fund. The fund’s revenue would flow from a variety of common
assets, starting with our atmosphere and our financial system. Over
time, its dividends could grow to about $5,000 per person per year.
These dividends would not be welfare but legitimate property income, and
they’d provide much-needed security to our shaky middle class.
This form of non-labor income is appealing because it’s

Simple

Fair

Transparent

Inclusive of everyone

Direct (no trickle down)

About ownership, not redistribution

Market-based

Easy to administer (a mid-sized computer could do it)

Transpartisan (appealing to libertarians and progressives)

But this method for distributing non-labor income is also part
of the larger vision I outlined earlier—a first step toward an economy
fit for the Anthropocene, an economy in which organized common wealth
sustains our planet and our middle class simultaneously. My hope is
that, over the next 20 years or so, we can put some of the key pieces of
such an economy into place.

I want to close by addressing the question of how this can actually
happen. We all know that Washington today is incapable of doing
anything, much less fixing the fundamental flaws of capitalism. But let
me quote the Nobel Prize-winning economist Milton Friedman here: “Only
a crisis—actual or perceived—produces real change. When that crisis
occurs, the actions that are taken depend on the ideas that are lying
around.” http://www.plancanada.com/capitalism3.pdf
We didn’t respond very well to the crisis of 2008 because, frankly,
we didn’t have any ideas lying around. We can’t waste another
opportunity like that.

The way to prepare for the next crisis is to spread the idea of
common wealth. Talk about it. Tweet about it. Blog about it. Start
saying things like “We own the air together” and “Our monetary system
belongs to everyone equally.” In other words, start naming common
wealth, and start organizing it locally where possible. If you do that,
there’s at least a chance that, after the next crisis, we can fix the
fundamental flaws of our current capitalist system. And that’s how we
can build a new normal for the 21st century.

The recent rise of the commons and the sharing economy seems to
suggest a growing recognition of the fact that our health, happiness,
and security depend greatly on the planet and people around us.
On the Commons highlights the many ways, new and old, that people
connect and collaborate to advance the common good and develop greater
economic autonomy in our new e-book Sharing Revolution: The essential economics of the commons by Jessica Conrad. You can download the free e-book